United Kingdom

Wind industry needs to fight cost misconceptions

WORLWIDE: Wind energy has a positive story to tell on costs. Not only are costs falling steadily, but predictions are that this downward trend will continue.

Rumours of chancellor George Osborne considering a 25% cut to suuport rates does little to attract investors to the UK

However, what is not predictable is whether policy makers will follow the facts or the politics.

A report called "The Past and Future Cost of Wind Energy", published by the International Energy Agency last May, found that the levelised costs - the price at which electricity must be generated to break even over the lifetime of the project - of onshore wind energy are at an all-time low, particularly in low and medium wind speed areas. This lower break-even cost of energy derives from improved performance, which offsets higher capital costs, trends that will continue, the report says.

The magnitude of the cost reductions is highly uncertain, but the authors suggest that somewhere around 20-30% is most likely, with the greatest cost reductions in the near term. Much work is being done in the sector to bring about lower costs of energy through technical innovation (see table, overleaf).

However, despite these positive predictions, the wind industry has a major battle on its hands. In many countries, politicians and the public at large hold a strong perception that renewables in general and wind in particular are very expensive and will put up consumer bills, while traditional forms of energy generation are cheaper. A familiar comment on news websites in many countries is that renewables are far more expensive than more traditional forms of energy generation, so why should public money be used to support them?

Media onslaught

In the UK in particular, misinformation about many aspects of wind energy has reached fever pitch. The sector is regularly attacked in the right-wing media under headlines such as "Scrapping wind farms in favour of nuclear and gas will save each of us £550", and "It is wind power that will send our bills sky-high".

This negativity has been picked up by politicians and has become a major factor in attacks on official government support for wind. Chancellor George Osborne was said to be seeking a cut of 25% to support rates under the renewables obligation mechanism, far higher than the energy ministry's proposed 10% cut.

The ensuing battle delayed the decision and, although in the end the government kept the cut to 10%, the uncertainty has spooked investors.

Tom Burke, an energy policy expert and visiting professor at Imperial and University Colleges in London, believes there are two main reasons for the misinformation about the cost of wind in the UK. One is deliberate attempts by the right-wing press to discredit wind energy, which leads to "cherry-picking" of numbers, which combines with ignorance to create "a lot of rubbish", says Burke. Trade associations produce information to combat this, but people simply refuse to believe them, he adds.

The other, he points out, is the sheer complexity of the issue and methodologies used to calculate the levelised cost of energy, based on assumptions (see diagram, below). "Unless you understand the assumptions and you have a view on the validity and robustness of the assumptions, they're just numbers. People with agendas can find numbers all over the place to back up whatever argument they want to make," he says.

Maf Smith, deputy chief executive of trade body RenewableUK, acknowledges that the UK wind industry has a particular problem. "It would be nice if these things didn't happen, but it's a fact of life."

Trust

He believes that politicians are open to discussion. "We have to trust them that they will take the information and that they are aware of the problems in other people's analysis. They need to trust us that we are realistic and accurate."

But Burke thinks the industry is naive. "The wind industry really needs to understand that this is not a problem about technology and economics, it's about politics and policy. Repeating good policy analysis doesn't change the politics," he says. "They've got to become grown-up about the politics and they're not."

The big utilities and the nuclear industry have been systematic and meticulous about how they have gained support, he points out. By example, he points to the way that Shell has promoted thought-leadership in the energy field to provide an umbrella to promote their gas interests. "If you're going to win a policy battle, you have to assemble a bigger, more powerful coalition of people who support you than the people who are opposing you."

Market reform

Ultimately, it is too early to say how much any form of energy will cost the UK consumer, as the government is in the middle of major market reform, with many details still needing to be clarified, says Ian Simm, CEO of investment managers Impax Asset Management.

Meanwhile, a worry is that financial support for wind could be cut retroactively, harming investments. But this threat could be curtailed in the legislation. "If there is a mechanism in the bill to protect investments against retroactive change then what George Osborne says to Ed Davey is of secondary importance to many investors who are looking at project level," Simm says.

However, if investors are looking strategically at which country to invest in, the political environment could prove to be a problem, he believes. "There are lots of other countries with ambitious renewables targets who are going about things in a much more straightforward and politically calm way and therefore if you are one of those large international investors looking for the ideal country to invest in then you're probably less attracted to the UK than you were a year ago."

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